How Taylor Swift Fans Broke Economics

Swifties have the same mental biases as the rest of us, making them reluctant to sell even at eye-watering prices

By James Mackintosh of The WSJ. 

One of the things the articles looks at is why people who buy tickets to a Swift concert at the original price won't sell them when "tickets were changing hands at more than eight times face value" and they would not have purchased them at that higher price if that was the original price.

Excerpts:

"This isn’t only about Taylor Swift tickets. Psychologists and behavioral-finance academics have long since established that we are all biased in favor of what we already own, valuing it more highly merely because we already have it, something they call the endowment effect.

Combine it with status-quo bias and loss aversion, and this effect handily explains why the secondary market in tickets is dysfunctional. As three luminaries of behavioral finance, Daniel Kahneman, Jack Knetsch and Richard Thaler, put it before Taylor Swift was born: “The disadvantages of a change loom larger than its advantages.”

For bands with less hype, this dysfunction is less important—last-minute tickets were still available for New Order this week, for example, with the added benefit for me of at least better music. But Taylor Swift tickets were in such demand when they first went on sale that they were rationed, so those allocated a ticket were grinning like they were winning. That feeling made them even less likely to sell later on.

These mental biases apply differently in different markets. In stocks, loss aversion often leads shareholders to dump their winners and hold on to losers to avoid crystallizing the loss—as though it isn’t real until the sale delivers less cash. Chartists like to draw lines on graphs showing previous tops on the basis that they provide a “resistance level”—part of the logic being that when prices get back up lots of investors will want to sell because they no longer have a loss.

In reality it is usually better to run your winners and ditch the losers, because stock prices have momentum. But that means accepting that losses are just as real whether the stock is held at the lower price or sold."

There is also an antitrust case against Live Nation Entertainment, which had "the disaster that was the launch of ticket sales for the U.S. leg of her tour last year."

Is Live Nation Entertainment a monopoly or is it guilty of monopolistic practices?  "Last year, it points out, its net profit margin was just 1.4%, far from the 20%-plus of the Big Tech oligopolies."